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India Receives Investment Proposals Worth $20 Billion for Chip Manufacturing

Last year, in mid-December, we published a report on the Programme for Development of Semiconductors and Display Manufacturing Ecosystem in India. And since then, India has received investment offers worth over 20 billion USD for semiconductor production.

According to the government statement last Saturday, companies like Vedanta, in a joint venture with Foxconn, IGSS Venture – a Singapore-based firm, and ISMC – led by Next Orbit Ventures Fund, have proposed an investment worth about 13.6 billion USD for producing chips locally. As per a Bloomberg report (1), these three companies have sought support of 5.6 billion from the Indian government under its aforementioned incentive plan.

Two more companies, Elest and Vedanta, have also submitted investment offers worth 6.7 billion USD to manufacture display fabs and have sought incentives of 2.6 billion USD from the Indian government, added the statement.

The Ministry of Electronics and Information Technology said although the timelines for the application submissions are stringent, the scheme has attracted a good response.

“The applications have been received for setting up 28 nm to 65 nm semiconductor fabs with a capacity of about 120k wafer per month,” it added.

The report further highlighted the Indian semiconductor market is likely to touch 63 billion USD by 2026 compared to 15 billion USD in 2020. This new 76k crore INR semiconductor PLI scheme is an initiative taken by our honorable Prime Minister Narendra Modi to help boost the manufacturing segment of the economy, which struggled massively because of the COVID-19 pandemic.

As a part of the plan, the central government has lined up incentive support for companies involved in silicon semiconductor fabs, compound semiconductors, display fabs, sensor fabs, silicon photonics, semiconductor design, and semiconductor packaging.

As a part of the initiative, for setting up fabrication units making technology nodes of 28 nm or lower, complementary silicon metal-oxide-semiconductor will get up to 50% of the project cost as an incentive, while above 28 nm, up to 45 nm will ger 40% incentive.

India took this move amid the fear that the worldwide cheap shortage will likely extend until early 2023, and the demand may remain strong, above the long-term expectations this year.

In addition, for setting up semiconductor testing, assembly, marketing, and packaging units, four companies – HCL, SPEL Semiconductor, Velankani Electronics, and Syrma Technology have submitted applications. Meanwhile, Ruttonsha International Rectifier has been applied to make compound semiconductors under the scheme.

Reportedly, the central government targets to formally open India’s first semiconductor fabrication unit by 2024 (2, 3). The approval for at least one major company among the three applied is likely to come before 31st March.

It is worth highlighting that the semiconductor shortage worldwide has been plaguing the automotive sector for some time, impacting the production of several automakers. Companies like Volkswagen and Toyota cut their production volumes and had to halt manufacturing in their factories. Indian automakers have also faced the brunt of the worldwide chip crisis.

Click here to know more about MEITY’s Semiconductor and Display Fab Ecosystem.

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Big Players in Semiconductor Industry

The Indian government has established an independent agency, ISM, Indian Semiconductor Mission, as an independent agency to spearhead the overall program. It has awarded acknowledgment to the applicants under the Semiconductor and Display Fab Schemes. It will work with the applicant businesses approaching the government to access the needed infrastructure.

It will also collaborate closely with state governments to build high-tech, world-class clusters with about 300 to 500 acres of development land, 50 MLD water, 100 KVA power, natural gas supply, and shared testing and certification facilities.

In an interview with CNBCTV18, IT Minister Ashwini Viashnaw said (4), “We have to look at the entire ecosystem. We have received applications for display fab, silicon fab, ATMP/OSAT, compound semiconductors, and design. Despite the short period that we gave, the response was good.”

When the minister was asked about the big players like Intel, Taiwan Semiconductor Manufacturing Company (TSMC), Samsung, Micron, and Infineon, and if these major companies will submit proposals, he responded that they would in the upcoming rounds.

“We have offered a 20-year roadmap to develop semiconductors. This sector needs a long-term commitment from the industry and the government, and it is only the first round.”

Vaishnaw further explained, “there are several other applicants who are seriously considering our initiative because of the way we designed this entire plan. Also, we have about 85k semiconductor engineers, and we are making good progress on that front. Therefore, there is an interest from many other players.”

During the talks about the big players in the industry, the minister noted that the significant corporations are evaluating our plan, and the government is hoping to see more in the upcoming phases.

Earlier, reports also suggested that in terms of big names in the semiconductor manufacturing sector, India and Taiwan have started talks for a free-trade agreement and set up a semiconductor manufacturing hub in India.

Last year, there were reports about the Indian government proposing a few locations for the facility, and Taiwan’s major semiconductor manufacturers like TSMC and United Microelectronics Corporations may undertake this massive mission (5, 6).

However, we have not come across any news with the confirmation of setting up a Taiwanese chip-manufacturing plant in India.

Recently, TSMC announced its plans to form a joint venture with Sony to build its first Japanese chip plant in Kumamoto (7). Similarly, last year Samsung Electronics also announced its plans to develop a new manufacturing facility in Texas while showing its interest to expand globally (8). There are no updates on its expansion to India so far.

Meanwhile, Intel has expressed interest in establishing a new manufacturing unit in India. Reportedly, Intel is expected to apply for incentives under the new scheme to encourage the development of a sustainable semiconductor and display fab ecosystem.

The interest in this news grew significantly after Vaishnaw had welcomed the company to India by tweeting, “Intel – Welcome to India,” following a tweet by SVP and President of Intel Foundry Services, Randhir Thakur, in December last year (9).

So far, Intel has not disclosed any details about its plans for India.

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India is Currently Focusing on Execution

During the interview, Vaishnaw stated that the Indian government is currently focusing on the program’s execution.

“We first need to execute the applications we have received so far well to create confidence about India’s capabilities. Since it is a complex supply chain, we first need to establish the supply chain of needed gas, chemicals, and ultra-pure water. We need to prove all that and demonstrate to the world for many more applicants to come,” noted the minister.

“We are currently focusing on what we promised and responses that we have received, that way, we have enough on our table to execute the first round. Then, we can go for the second round,” said the minister while clarifying that a particular time frame for the subsequent round is difficult to confirm.

However, going forward, he said, the authorities will first need to evaluate all the applications received so far and ensure that the structure these companies have proposed aligns with the module the government has designed in the scheme documents.

“We also need to ensure that wherever we build a fab, the ecosystem has to develop around it. It will ensure that the people who consume those semiconductor chips set up their facilities nearby. We are looking at such a cluster approach,” stated Vaishnaw while adding that the government will ensure that all the needed approval will be achieved within a short time.

The minister also talked about what the pre-work center has done with many state governments and has requested all of them to develop their proposals when asked about the collaboration between the center and state governments.

“We have proposals on the table from eight state governments with different locations, different types of power, transportation, and water facilities. A lot of groundwork is done for this initiative,” noted Vaishnaw. The eight states that have given options for the ecosystem include Gujarat, Uttar Pradesh, Tamil Nadu, Karnataka, Odisha, Telangana, and Madhya Pradesh (10, 11).

“We look at a time frame of about eight to ten months to finalize everything, including scheme approvals, power facilities and land approvals, and finalizing the site,” he added.

Vaishnav asserted, “We aim to start the work on the ground at some point in early next year. It is a bit of an aggressive target, but I believe we as a country need to work at that speed.”

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Closing Remarks

At present, India imports all its chips. However, India has realized that a 100% dependency on global supply chains for something as critical as semiconductor chips is not wise (12).

India has long needed to become self-reliant in this sector. Hence, the cabinet’s decision to establish India as a semiconductor manufacturing hub to drive the sustainable development of the chip and display sector is a belated but a step in the right direction.

There are several challenges associated with the mission (13, 14).

For instance, the level of financial support currently envisioned is minimal if we consider the scale of investments needed to set up manufacturing capacities in the several subsectors within the semiconductor industry.

India’s PL scheme aims to give 50% of the cost of setting up at least two greenfield semiconductor fabs while offering financial support. And not much of the present scheme outlay, about 10 billion USD, is likely to be left to support other elements like testing and packaging facilities, display fabs, and chip design centers.

It is worth highlighting that a single semiconductor fab facility can cost multi-billion dollars to set up, even on a small scale, and lag by a generation or two behind the latest technology.

Second, although India has a decent talent for chip design, it has never built up chip fab capacity. At present, India has ISRO and DRDO with their respective fab foundries, which are primarily for their own needs, and not as sophisticated as the latest (15).

On the other hand, chip fabs need millions of liters of pure water, an extremely stable power supply, huge land, and a highly-skilled workforce.

The way forward for India would be to focus on offering sufficient financial support to all the elements of the chip-making chain. At the same, it needs to improve its research and development in this sector.

Considering the long gestation periods and fast-paced technology developments, India can out-strategize design and functionality as the final product will be out only after three-four years from the moment the work starts. Since the present scenario suggests the prevailing chip shortages would have been resolved, and technology would have advanced much further by that point.

India can use its PSEs like Hindustan Aeronautics Ltd and Bharat Electronics Ltd to set up a semiconductor facility with the help of a global giant. Allowing a free hand in a joint venture where a global player has brought in technical expertise with long-term stability and proper incentives can lead to success.

The immediate need is to connect associated sectors to create a chip manufacturing cluster or ecosystem and simultaneously enhance national capabilities. Also, India can focus on ensuring the sustainability of upcoming companies when the government withdraws its subsidies (16).

Overall, India needs to push for a resilient semiconductor supply chain immunized from geographic and geopolitical risks. And the recent development is only a small step toward that gigantic goal. Petite but towards the right direction nonetheless.